SWIFT v. PANDEY et al

Filing 26

OPINION fld. Signed by Judge Jose L. Linares on 11/13/13. (sr, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

ROBERT SWIFT,

Civil Action No. 13-650 (JLL)

Plaintiff,
OPINION
V.

RAMESH PANDEY, et al.,

Defendants.
LINARES, District Judge.

This matter comes before the Court by way of Defendants Ramesh Pandey (“Ramesh”),
Bhuwan Pandey (“Bhuwan”), and Abhilasha Pandey (“Abhilasha”) (collectively “Defendants”)’
motion to dismiss Plaintiff’s Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. [CM/ECF No. 20.1 The Court has considered the submissions made in support of
and in opposition to the instant motion. No oral argument was heard pursuant to Federal Rule of
Civil Procedure 78.

For the reasons that follow, Defendants’ motion to dismiss is granted.

Counts Five, Ten, and Fifteen are dismissed with prejudice. All remaining counts—Counts One,
Two, Three, Four, Seven, Eight, Nine, Eleven, Twelve, Thirteen, and Fourteen—are dismissed
without prejudice.

Plaintiff may file a Second Amended Complaint that cures the pleading

deficiencies in Counts One, Two, Three, Four, Seven, Eight, Nine, Eleven, Twelve, Thirteen,
and Fourteen on or before December 13, 2013.1

Plaintiff may not add any additional causes of action without adhering to Federal Rule of Civil Procedure 15(a).

1

I.

2
BACKGROUND

Plaintiff’s Amended Complaint was filed on August 5, 2013. According to the Amended
Complaint, Plaintiff, Robert Swift, at an unspecified time, purchased all the right, title, and
interest to all assets of Xechem International, Inc. and Xechem, Inc. (collectively “Xechem”) at
Chapter 7 auction in Bankruptcy Court. (Amend. Compl.

¶ 4.) These assets included any and all

right, title, and interest to Xechem Pvt. Limited (“Xechem India”) and Xechem Pharmaceuticals
Nigeria, Ltd. (Id.) This action stems from the alleged wrongful conduct of the Defendants in
connection with Xechem and Xechem India.
Xechem India is based out of New Delhi, India and is a “family business” owned and
operated by Ramesh and Bhuwan. (Id. at ¶11 18, 21.) Ramesh was the Chief Executive Officer
and Treasurer of Xechem from 1994 through July 5, 2007. (Id. at ¶J 31, 51.) Ramesh is also the
Chief Executive Officer and a director of Xechem India. (Id. at ¶ 11.). Bhuwan is Ramesh’s
brother and was an officer of Xechem from 2002 until May 29, 2007. (Id. at
¶J 12, 31.) He is
also General Manager and a director of Xechem India, in which he originally had a 25-percent
ownership interest. (Id. at ¶ 13.) In 1998, Ramesh transferred nearly all of his shares in Xechem
India to Bhuwan, who, as of August 2007, owned nearly 100 percent of its stock. (Id. at 13.)
¶
Abhilasha, Bhuwan’s daughter, was the “Sarbanes-Oxley Compliance Manager for Xechem
from June 2006 to July 2007, and worked for Xechem India since at least January 2000.” (Id. at

¶ 17.)
Plaintiffjoined Xechem’s board of directors in May 2007 as the representative of the interest
of convertible bondholders he had brought to the company. (Id. at ¶J 3 7-40.) Over $2 million of
the money raised through the convertible bond offering was from Plaintiff’s friends and family.
(Id. at ¶J 38.)
2

The Court accepts the following facts asserted in Plaintiff’s Complaint as true solely for purposes of this motion.

2

At a May 29, 2007 meeting of Xechem’s board of directors, the Board discovered that
Ramesh had spent nearly $4.3 million of the convertible bond offering in violation of the
agreement with the bondholders. (Id. at ¶ 41.) The board then demanded an accounting of all
money lent to Xechem India by Xechem. (Id. at ¶ 42.) Ramesh told the board that $700,000 had
been lent from Xechem from Xechem India and represented to the board that Xechem India was
a subsidiary of Xechem. (Id. at ¶ 43.) The board subsequently withdrew Ramesh’s authority to
advance or spend more than $5,000 of Xechem’s money without board approval. (Id. at ¶ 49.)
Ramesh violated this directive by writing checks totaling $605,639.87 made out to his friends
and family. (Id. at ¶ 50.) Rarnesh was subsequently removed from his position as Chief
Executive Officer, President, and Treasurer of Xechem on July 5, 2007. (Id. at ¶ 51.) On
November 10, 2008, Xechem filed for Chapter 11 bankruptcy. (Id. at ¶ 52.)
Although the Amended Complaint is not clear on this point, Plaintiffs allegations apparently
stem from loans from Xechem to Xechem India totaling $1,083,682 (the “loan”). (See, e.g., id.
at ¶J 43, 45, 60(e), 64, 73, 76, 85, 106, 122(e), 128, 134.) Xechem India has not repaid the
principal or interest on this loan to Xechem, which, at this point, is over $2 million. (Id. at ¶J 55,
134.)
Plaintiff claims that all of the Defendants concealed and/or failed to disclose that Xechem
India was owned by Ramesh and Bhuwan, contrary to representations that Ramesh had
previously made to Xechem’s board of directors and the “investing public” that Xechem India
was a “subsidiary” of Xechem. (See id. at ¶J 43-44, 60(a)-(c), 90-91, 97(a)-(c), 122(a)-(c).)
Plaintiff alleges that Xechem’ s Board of Directors believed that the company owned two-thirds
of Xechem India, and this belief was based on statements in “SEC filing[s].” (Id.

¶ 91.) Plaintiff

claims that Xechem’s board would not have authorized the loan “if it had known that [Xechem

3

India] was not a Company subsidiary and that Bhuwan owned 99.8% of Xechem India.” (Id. at ¶
54.)

Plaintiff asserts that, through Xechem India, Ramesh and Bhuwan, assisted by Abhilasha,
used the proceeds of the loan to: (I) lease office space in India from Ramesh; (2) pay money to
relatives of Ramesh and Bhuwan in India; (3) pay the Defendants’ “personal expenses”; (d) buy
“assets in India”; (4) acquire a leasehold interest in certain land in India; and (5) purchase a
“spray dryer” machine. (See id. at ¶J 46-48, 80, 86, 110, 115-116, 127.) In addition, Plaintiff
alleges that Defendants concealed these assets from Xechem’s board. (Id. at ¶ 44.)
In light of the foregoing, Plaintiffs Amended Complaint asserts fifteen causes of action that
fall into the following nine categories: (1) breach of fiduciary duty as against Ramesh, Bhuwan,
and Abhilasha; (2) breach of duty of loyalty as against Ramesh, Bhuwan, and Abhilasha; (3)
ultra vires act as against all Defendants; (4) unjust enrichment as against Ramesh and Bhuwan;
(5) disgorgement of unlawful profits as against Ramesh and Bhuwan; (6) civil conspiracy as
against all Defendants; (7) breach of contract as against Xechem India; (8) alter ego as against
Ramesh and Bhuwan; and (9) fraudulent concealment as against all Defendants. Defendants
now move to dismiss all claims asserted in the Amended Complaint pursuant to Federal Rule of
Civil Procedure I 2(b)(6).
IL

LEGAL STANDARD

For a complaint to survive dismissal, it “must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.’ “Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Id.

4

In determining the sufficiency of a complaint, the Court must accept all well-pleaded
factual allegations in the complaint as true and draw all reasonable inferences in favor of the
non-moving party. See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). But,
“the tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. Thus, legal conclusions draped in the
guise of factual allegations may not benefit from the presumption of truthfulness. Id.
III.

DISCUSSION

Before turning to Defendants’ arguments, the Court notes that Plaintiff has agreed to
withdraw Count Six (fraudulent concealment as against all Defendants). Thus, Count Six in the
Amended Complaint is hereby deemed withdrawn and shall be stricken from the Amended
Complaint (or any future iterations of same).
The Court also notes some deficiencies in Plaintiffs opposition brief. First, Plaintiffs
brief fails to contain a table of contents or a table of authorities, both of which are required by
Local Civil Rule 7.2(b).
Second, Plaintiffs opposition brief contains a recitation of the relevant facts, with no
citations to the Amended Complaint. In determining the sufficiency of a complaint, the Court
must, inter alia, accept all well-pleaded factual allegations contained in the complaint as true and
then determine whether said allegations contain sufficient factual matter to state a claim to relief
that is plausible on its face. See Phillips, 515 F.3d at 234; Iqbal, 556 U.S. at 678. Moreover, a
complaint cannot be amended (or supplemented) by way of an opposition brief. See
Pennsylvania cx rel v. Zimmerman v. Pepsico, 836 F.2d 173 (3d Cir.1988) (“It is axiomatic that
the complaint may not be amended by the briefs in opposition to a motion to dismiss.”) (citation
omitted). It appears to the Court that Plaintiffs opposition brief contains facts that are not

5

expressly set forth in the Amended Complaint. Because the factual background section of
Plaintiff’s opposition brief contains no citation to the Amended Complaint, the Court has no way
of knowing for sure whether each and every factual allegation contained therein is also present in
the Amended Complaint, and, if so, where. The Court has done its best to assess the instant
motion to dismiss based on the facts pled in the Amended Complaint.
Finally, the Court notes that Plaintiffs opposition brief is practically devoid of any
citations to legal authority. While the Court is mindful of Plaintiffs pro se status, it is not the
Court’s responsibility to engage in its own legal research in order to find legal authority to
support Plaintiffs arguments—nor would it be proper for the Court to do so. Again, the Court
has done its best, under the circumstances, to assess Defendants’ legal arguments, along with the
arguments raised by Plaintiff in opposition, despite Plaintiff’s failure to cite to any legal
authority in support of same.
Plaintiff shall take note of the foregoing deficiencies in his submission and shall be
guided accordingly, in any filings with this Court.
a. Timeliness of Plaintiffs Unjust Enrichment, Breach of Fiduciary Duty, and
Conspiracy Claims
Generally, a “[statute ofj limitations defense must be raised in the answer, since Rule
12(b) does not permit it to be raised by motion.” Robinson v. Johnson, 313 F.3d 128, 135 (3d
Cir. 2002). “However, the law of this Circuit (the so-called ‘Third Circuit Rule’) permits a
limitations defense to be raised by a motion under Rule 12(b)(6), but only if the time alleged in
the statement of a claim shows that the cause of action has not been brought within the statute of
limitations.” Id. Thus, Defendants may only prevail on the statute of limitations at the motion to
dismiss stage if it is apparent from the face of the complaint that the cause of action is barred.

6

Robinson, 313 F.3d at 135 (citation omitted). “If the allegations, taken as true, show that relief is
barred by the applicable statute of limitations, a complaint is subject to dismissal for failure to
state a claim.” Cain v. Dep’t ofPub. Welfare, 442 F. App’x. 638 (3d Cir. 2011) (citing Jones v.
Bock, 549 U.S. 199, 215 (2007); Bethel v. Jendoco Constr. Corp., 570 F.2d 1168, 1174 (3d Cir.
1987)).
Defendants claim that Plaintiff’s unjust enrichment, breach of fiduciary duty, and
conspiracy claims are time-barred pursuant to the applicable six-year statute of limitations, and
should be dismissed. See N.J.

ANN. 2A:14-l. The Court will address the timeless these

STAT.

claims in turn.
i. Unjust Enrichment Claims
“The statute of limitations in New Jersey for claims sounding in restitutionlunjust
enrichment or quantum meruit is six years.” Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424,
473 (D.N.J. 1999). In Baer v. Chase, the Third Circuit addressed the question of accrual of
quasi-contract and quantum meruit claims and held that, in the absence of specific New Jersey
law to the contrary, the discovery rule does not apply to quantum meruit cases. Baer v. Chase,
392 F.3d 609, 622 (3d Cir. 2004). Rather, courts employ a “last rendition of services” test. Id.
Under this test, the date of accrual of Plaintiff’s unjust enrichment claim is the last date upon
which Xechem sent a portion of the loan money to Xechem India.
Defendants assert that Plaintiff’s unjust enrichment claims are time-barred because the
Amended Complaint states that “all. .transfers of the money comprising the Loan were made by
.

2006.” (Def. Mot. at 11.) Plaintiff asserts that the claim did not accrue until 2007, when the last
transfer of money from Xechem to Xechem India took place. Plaintiff claims that he “stated and
included as an exhibit [to the Amended Complaint] the wire transfer number [for]

7

$100,000.. ,sent to Xechem India on April 16, 2007 by Xechem International, Inc.[] and [that]
the Board minutes of May 29, 2007 reflect this.” (P1. Opp. at 2-3.)
As explained above, a complaint cannot be amended by way of an opposition brief. The
Court cannot locate where in the Amended Complaint Plaintiff stated that $100,000 was sent
from Xechem to Xechem India in 2007. In fact, the Amended Complaint states that Xechem
India’s “financial existence from 2000 through 2006 depended on monies borrowed from the
Company.” (Am. Compi.

¶ 45.)

In light of this, the Court finds that Plaintiff’s unjust

enrichment claims as pleaded are time-barred and dismisses them without prejudice.
3
ii. Fiduciary Duty and Conspiracy Claims
“A claim for breach of fiduciary duty, which has a six year statute of limitations,
commences to run at the point the plaintiff has actual or constructive knowledge of the
breach.” Fleming Cos. v. Thrifiway Medford Lakes, 913 F. Supp. 837 (D.N.J. 1995) (citing Zola
v. Gordon, 685 F. Supp. 354, 374 (S.D.N.Y. 1988)). “A plaintiff has actual or constructive
knowledge of a cause of action for breach of fiduciary duty when the plaintiff learns, or
reasonably should learn, of the existence of the state of facts which may equate in law with the
cause of action.” Id. (citingBurdv. New Jersey Tel. Co., 386 A.2d 1310, 1314 (1978)).
Defendants assert that Plaintiff’s fiduciary duty and conspiracy claims are time-barred
because Xechem should have discovered that it did not own a substantial portion of Xechem
India prior to 2007. For this argument, Defendants rely on Xechem’s SEC filings from 1997,
1998, and 2000-2004, in which Xechem stated that Ramesh’s transfer of his ownership interest
The Court also notes that to state a claim for unjust enrichment under New Jersey law, a Plaintiff
must establish
that the “defendant received a benefit and that retention of that benefit without payment would
be unjust” and that
Plaintiff “expected remuneration from the defendant at the time it performed or conferred a benefit
on defendant and
that the failure of remuneration enriched defendant beyond its contractual rights.” VRG Corp.
v GKN Realty Corp.,
135 N.J. 539. 554 (1994). Moreover, under New Jersey law, “recovery under unjust enrichment
may not be had
when a valid, unrescinded contract governs the rights of the parties.” Van Orman v. Am. Ins. Co.,
680 F.2d 301, 310
(3d Cir. 1982).

8

in Xechem India to Xechem was “[s]ubject to obtaining necessary regulatory approvals in
India..

“

(Def. Mot. at 13; Def. Reply at 3-4.) However, as Plaintiff points out, whenever that

clause appears in a filing, the filing also states that Xechem “owns substantially all of Xechem
India” and that “as a contribution to Xechem’s capital, Dr. Pandey transferred his 66-2/3%
interest in Xechem India to Xechem....” (P1. Opp. at 4.) The filings from 2005 and 2006 do not
contain the qualifying language about Ramesh obtaining the necessary regulatory approvals in
India.
In light of the contradictory language in the SEC filings, this Court finds that the
timeliness of Plaintiff’s fiduciary duty and conspiracy claims cannot be decided from the face of
the complaint alone. See Lapin v. Goldman Sachs Group, Inc., 506 F. Supp. 2d 221, 234
(S.D.N.Y. 2006) (“[O]n a motion to dismiss, unless Defendants can produce uncontroverted
evidence that irrefutably demonstrates when plaintiff discovered or should have discovered the
fraudulent scheme, they cannot satisfy the heavy burden of establishing inquiry notice as a
matter of law.”) (internal quotations omitted). Thus, the Court denies Defendants’ motion to
dismiss on statute of limitations grounds Plaintiff’s fiduciary duty and conspiracy claims at this
time.
b. Ultra Vires
Count Two of Plaintiff’s Amended Complaint alleges that: (a) “a transfer of substantial
assets of the Company required the approval of the board of directors,” (b) “Ramesh transferred
$1,083,682 to Xechem India without obtaining Board approval,” (c) “Ramesh transferred 49% of

The Court may consider documents in the public record, such as SEC filings, on a motion to dismiss without
converting it into one for summary judgment. See Beverly Enters., Inc. v. Trump, 182 F.3d 183, 190
n.3 (3d Cir.
1999) (holding that a court may consider “matters of public record” on a motion to dismiss without converting
the
motion to one for summary judgment); Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192,
1996
(3d Cir. 1993) (recognizing that, in evaluating the facial plausibility of a complaint, “courts can generally consider
only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record.”)
‘

9

Xechem India from Ramesh to Bhuwan without obtaining Board approval,” and, as a result, (d)
“the purported transfer of the assets was an ultra vires act and was void and ineffective.” (Am.
Compi.

¶J 63-66).

Defendants move to dismiss this count on several grounds, including, but not

limited to, the fact that Plaintiff, as assignee of Xechem’s rights, lacks standing to invoke the
New Jersey ultra vires statute, N.J.S.A. 14A:3-2.
In opposing dismissal of this count of the Amended Complaint, Plaintiff does not dispute
that such count is brought pursuant to N.J.S.A. 14A:3-2 (“Ultra vires transactions”). N.J.S.A.
5
14A:3-2 provides, in pertinent part:
No act of a corporation and no conveyance or transfer of real or
personal property to or by a corporation shall be invalid by reason
of the fact that the corporation was without capacity or power to do
such act or to make or receive such conveyance or transfer, but
such lack of capacity or power may be asserted:
(a) In a proceeding by a shareholder against the corporation to
enjoin the doing of any act or acts or the transfer of real or
personal property by or to the corporation. If the unauthorized
acts or transfer sought to be enjoined are being, or are to be,
performed or made pursuant to any contract to which the
corporation is a party, the court may, if all of the parties to the
contract are parties to the proceeding and if it deems the same
to be equitable, set aside and enjoin the performance of such
contract, and in so doing may allow to the corporation or to the
other parties to the contract, as the case may be, compensation
for the loss or damage sustained by either of them which may
result from the action of the court in setting aside and enjoining
the performance of such contract, but anticipated profits to be
derived from the performance of the contract shall not be
awarded by the court as a loss or damage sustained.
(b) In a proceeding by the corporation, whether acting directly or
through a receiver, trustee, or other legal representative, or

Nor do the parties dispute that New Jersey law governs Plaintiffs claims. See Am. Cyanamid
Co. v. Fermenta Animal Health, 54 F.3d 177, 180 (3d Cir. 1995) (“The district court exercised its
diversity jurisdiction. This means that the law to be applied is that of the forum state-New
Jersey.”).
10

through shareholders in a representative suit, against the
incumbent or former officers or directors of the corporation.
(c) In a proceeding by the Attorney General, as provided in this
act, to dissolve the corporation, or in a proceeding by the
Attorney General to enjoin the corporation from the transaction
of unauthorized business.
N.J.S.A. 14A:3-2.
In support of its motion to dismiss, Defendant argues that the Amended Complaint
contains no factual allegations suggesting that the payments allegedly made by Ramesh exceeded
the powers given to Xechem in its articles of incorporation. In support of this requirement,
Defendant cites to 7A William M. Fletcher, Cyclopedia of the Law of Corporations

§ 3400 for

the following proposition: “When properly used, the words ‘ultra vires,’ as applied to the act of a
corporation, mean simply an act that is beyond the powers conferred upon the corporation by its
charter, as distinguished from an act that is authorized by its charter.” The Appellate Division
has confirmed that “{i]f a board exceeds its powers as provided in its governing documents, then
the board’s action is ultra vires.” Cmty. Access Unlimited v. Rockcliffe, 2012 WL 1431267, at *3
n. 4 (N.J. Super. App. Div. April 26, 2012) (citing Verna v. Links at Valleybrook Neighborhood
Ass ‘n, 371 N.J. Super. 77, 91—92 (App. Div. 2004)). To the extent Plaintiff’s claim for ultra
vires is premised on the fact that Ramesh, acting on behalf of the Board, exceeded his powers in
making the loan to Xechem India, the Court agrees that Plaintiff’s Amended Complaint fails to
contain any facts suggesting that the loan was made by Ramesh without the approval of the
Board or exceeded the powers given to Xechem in its governing documents. In addition, to the
extent Plaintiffs ultra vires claim stems from Ramesh’s transfer of his 49% ownership of
Xechem India to Bhuwan, the Amended Complaint provides no facts to support a claim that such
a transfer would be ultra vires within the meaning of the statute.

11

Next, Defendant argues that Plaintiff lacks standing to invoke this statute inasmuch as he
is merely assignee of the rights of Xechem, not its “legal representative” within the meaning of
the statute. Plaintiff maintains, however, that by virtue of his purchase of all right, title, and
interest in the assets of Xechem at the Chapter 7 auction, he became the “legal representative”
for its legal claims. Thus, he argues that “the Ultra Vires claim is a legal proceeding by Xechem
International, Inc. against defendant Ramesh Pandey.” (P1.

Opp.

at 8).

Having carefully

considered the parties’ arguments, the Court concludes that because the Amended Complaint
does not allege that Plaintiff is a shareholder of Xechem, or that the case is brought by the
Attorney General or by Xechem directly, Plaintiff’s claim pursuant to N.J.S.A. 14A:3-2 can only
proceed if the Amended Complaint contains facts establishing that this case is brought by a
receiver, trustee, or other legal representative of Xechem.

Although Plaintiff argues, in his

opposition brief, that he is Xechem’s legal representative, the Amended Complaint does not
allege any facts to support this conclusion; rather, the Amended Complaint alleges merely that
Plaintiff purchased all of Xechem’s assets. Moreover, Plaintiff cites to no binding legal authority
in support of the theory that his purchase at the Chapter 7 auction renders him a legal
representative of Xechem.
In light of the foregoing, Plaintiff has failed to state a claim pursuant to N.J.S.A. 14A:3-2
that is plausible on its face. Defendants’ motion to dismiss this claim is granted; Count Two of
Plaintiff’s Amended Complaint is dismissed without prejudice.
c. Breach of Fiduciary Duty
Counts One, Seven, and Eleven allege breach of fiduciary duty claims as against
Defendants Ramesh, Bhuwan, and Abhilasha.

In particular, Count One alleges that, as an

employee of the Company, Ramesh breached his fiduciary to the Company by not disclosing that

12

Xechem India was in fact not owned by Xechem or that Xechem India had significant assets;
transferring $1,083,682 from Xechem to Xechem India for his own benefit; aiding and abetting
Xechern India to obtain the loan money; and not transferring his original 66-2/3% ownership of
Xechem India to the Xechem. (Am. Compi.,

¶J 60a-h.) Similarly, Count Seven alleges that, as

an Officer of the Company, Bhuwan owed a fiduciary duty to the Company that he breached by
not disclosing to the Board of Directors that Xechem India was not a subsidiary of Xechem, that
Bhuwan owned 99/8% of Xechem India, and that Xechem India had significant asserts. (Id.,
97a-d.)

¶J

Count Seven also alleges that Bhuwan breached his fiduciary duty by transferring

$106,288 from Xechem to Xechem India for his own benefit and aiding and abetting Xechem
India to obtain the loan from Xechem. (Id.

¶11 97e-g.) Count Eleven alleges that, as an Officer of

the Company, Abhilasha breached her fiduciary duty by not disclosing to Xechem that Xechem
India was not its subsidiary; not disclosing that Xechem India was “100% owned and controlled
by her father and his brothers;” not disclosing that Xechem India had significant assets; and by
aiding and abetting Xechem India to obtain the loan from Xechem. (Id.

¶J 122a-e.)

The Pandey Defendants move to dismiss all fiduciary duty claims on several grounds. In
opposition to Defendants’ arguments, Plaintiff argues that Xechem “had no power to and was not
in the business of making loans to companies it did not own.” (P1. Opp. at 5.) Plaintiff also
argues that the loan was a “sham” which “was nothing more than a way for the Pandey brothers
to transfer money to themselves, and use the money for personal assets and expenses, thereby
depriving Xechem International, Inc. of necessary capital needed to sustain its business.

. ..“

(Id.

at 6.) He claims that neither of Xechem’s other Directors, Dr. Adelaja and Mr. Burg, knew that
Xechem India was owned 100% by the Pandey brothers and would not have “condoned a loan to
Xechem India by Xechem International, Inc. had they known.

13

. ..“

(Id. at 5.) Plaintiff states that

this loan was a “mere pretense,” and that there is no contract laying out the loan’s terms. (Id. at
6.) Plaintiff also asserts that the loan was uncollateralized, and that the loan proceeds were used
to enable Xechem India to compete with Xechem and to pay for Ramesh and Bhuwan’s personal
expenses. (Id.) As to Abhilasha’s duty, Plaintiff claims that, “given that she was the Sarbanes
Oxley Compliance Manager responsible for verifying the contents of SEC filings, the fact that
she worked for Xechem India, the fact that her [u]ncle and [f]ather knew the ownership status of
Xechem India, it [is] reasonable to presume that [she] knew.

. .“

the true ownership of Xechem

India and concealed it from Xechem. (Id. at 11.)
In order to state a claim for breach of fiduciary duty under New Jersey law, Plaintiff must
allege: (1) a fiduciary relationship comprised of “two persons when one person is under a duty to
act for or give advice for the benefit of another on matters within the scope of their relationship,”
and (2) a “violation of that trust.” F.G. v. MacDonell, 150 N.J. 550, 563—65 (1997). Defendants
do not dispute that, as a general matter, “officers are fiduciaries of the corporations they serve.”
See In re United Artists Theatre Co., 315 F.3d 217, 230 n. 14 (3d Cir. 2003); Riddle v. Mary A.
Riddle Co., 140 N.J. Eq. 315, 318 (Ch. Div. 1947). Nor can it be reasonably disputed that
“directors of the corporation

.

.

.

are bound to act for its best interests.” Riddle, 140 N.J. Eq. at

318.
As to the second prong, the Court notes that Plaintiff has attempted—by way of his
opposition brief—to supplement his fiduciary duty claims with facts that are not set forth in the
Amended Complaint. For instance, Plaintiffs allegations that the loan was uncollateralized and
a “sha,’n” which “was nothing more than a way for the Pandey brothers to transfer money to
themselves, and use the money for personal assets and expenses, thereby depriving Xechem
International, Inc. of necessary capital needed to sustain its business..

14

.“

are not set forth in the

Amended Complaint.

(P1.

Opp.

at 6) (emphasis added). Plaintiff’s statement that Xechem was

not authorized to lend money to companies that were not its subsidiaries also does not appear in
the Amended Complaint.

(id. at 5.)

In addition, Plaintiff’s assertion that Abhilasha was

“responsible for verifying the content of [Xechem’sj SEC filings” is not set forth in the
Amended Complaint and cannot serve as a basis for a breach of fiduciary claim against her. (Id.
at 11.) As previously stated, a complaint cannot be amended (or supplemented) by way of an
opposition brief. Such factual allegations concerning the nature of the loan from Xechem to
6
Xechem India and concerning Abhilasha’s duties to Xechem are not properly before this Court
and cannot be considered in assessing whether Plaintiff has succeeded in stating a breach of
fiduciary duty claim that is plausible

on its face.

Even assuming the existence of a fiduciary relationship between Xechem and each of the
Defendants, absent factual content concerning the nature of the loan and its terms, the Court
cannot draw the reasonable inference that the loan was illegitimate, a “sham,” and a product of
Defendants’ misleading statements. Absent any facts establishing that the loan was illegitimate,
the Court cannot reasonably infer that facilitating the making of the loan was a violation of trust
for purposes of stating a breach of fiduciary duty claim under New Jersey law. See MacDonell,
150 N.J. at 565 (“Establishing a fiduciary duty essentially requires proof that a parishioner
trusted and sought counseling from the pastor. A violation of that trust constitutes a breach of
the duty.”).
Moreover, Defendants argue that in order to hold the Defendants liable individually for a
loan made to Xechem India, Plaintiff would have to set forth facts demonstrating that the
standard for piercing Xechem India’s corporate veil, discussed below, has been met. Plaintiff’s
6

See Zimmerman, 836 F.2d at 181 (“It is axiomatic that the complaint may not be amended by the briefs in
opposition to a motion to dismiss.”) (citation omitted).

15

allegations that Xechem India is a “mere alter ego” of Ramesh and Bhuwan; that “Xechem India
failed to adhere to corporate formalities.. .;“ and that there is a “unity of interest and ownership
between Xechem India and. .the Pandey brothers” are conclusory, merely regurgitate the legal
.

standard for piercing the corporate veil, and are insufficient to withstand Defendants’ motion to
dismiss. (See Am. Compl.

¶J 25, 27, 28,140-144.) In light of the foregoing, Defendants’ motion

to dismiss the breach of fiduciary claims is granted; such claims are dismissed without prejudice.
d. Breach of Duty of Loyalty
Counts Three, Eight, and Twelve allege claims of breach of the duty of loyalty as against
Defendants Ramesh, Bhuwan, and Abhilasha. Plaintiff’s breach of the duty of loyalty claims are
premised on the same theory underlying his breach of fiduciary duty claims—namely, that
Defendants breached their respective duties of loyalty to Xechem by not transferring ownership
interest in Xechem India to Xechem; not disclosing that Xechem India was owned entirely by the
Pandey brothers; actively competing with Xechem; and by transferring money from Xechem to
Xechem India for their own self-interest (or aiding and abetting in said actions).
Compl.

(See Am.

¶J 69-73, 101-103, 126-129.)
“Common law

.

.

.

imposes on a director a duty of loyalty to the corporation served.”

Matter of Seidman, 37 F.3d 911, 933 (3d Cir. 1994). “The duty of loyalty includes a duty to
avoid conflicts of interest.” Id. (citing Pepper v. Litton, 308 U.S. 295, 306, 310—11 (1939)).
New Jersey law, in particular, requires that “the conduct of the business of the corporation must
be exercised by the directors honestly and in good faith, for what the directors, in their best
judgment, deem to be for the best interest of the corporation.” Riddle, 140 N.J. Eq. at 318.
Even assuming the existence of a fiduciary relationship between Xechem and
Defendants, Plaintiff’s conclusory allegations of misappropriation of Company funds—without

16

any facts to provide proper context—fail to nudge Plaintiff’s claims of breach of duty of loyalty
across the line from conceivable to plausible. In particular, the Court reiterates that Plaintiff’s
allegation that the loan was uncollateralized and a “sham” which “was nothing more than a way
for the Pandey brothers to transfer money to themselves, and use the money for personal assets
and expenses, thereby depriving Xechem International, Inc. of necessary capital needed to
sustain its business...” is not set forth in the Amended Complaint.

(P1. Opp. at 6.) Absent

factual content demonstrating that the Pandey defendants were acting to benefit themselves at the
expense of Xechem, or actively competing with Xechem, Plaintiff’s conclusory allegations of
self-dealing are insufficient to state a claim for breach of duty of loyalty that is plausible on its
face. Defendants’ motion to dismiss Counts Three, Eight, and Twelve is granted; such claims
are dismissed without prejudice.
e. Disgorgement of Unlawful Profits
Defendants move to dismiss Plaintiffs’ claims of disgorgement on the basis that
disgorgement is a remedy, not a cause of action.

Plaintiff essentially concedes that

disgorgement is not a standalone claim when he argues that Ramesh and Bhuwan Pandey
knowingly and voluntarily accepted and retained the benefit of the $1,083,682 loan, land, and
spray dryer, that retention of said money and assets would be unjust, and that, as a result,
Plaintiff is entitled to the remedy of disgorgement. (P1. Opp. at 9, 10-1 1). The Third Circuit has
explained that “disgorgement is an equitable remedy designed to deprive a wrongdoer of his
unjust enrichment and to deter others from violating securities laws.” S.E.C. v. Hughes Capital
Corp., 124 F.3d 449, 455 (3d Cir. 1997) (quoting S.E.C. v. First City Fin. Corp., 890 F.2d 1215,

1230 (D.C. Cir. 1989)); Commodity Futures Trading Comm ‘n v. American Metals Exch. Corp.,
991 F.2d 71, 76 (3d Cir. 1993) (“Disgorgement does not penalize, but merely deprives

17

wrongdoers of ill-gotten gains.”) (citation omitted).

The New Jersey Supreme Court has

likewise construed disgorgement as an appropriate remedy in cases involving claims of unjust
enrichment. See County of Essex v. First Union Nat. Bank, 186 N.J. 46, 49 (2006) (“The primary
issues in this appeal are whether claims for unjust enrichment/disgorgement survive when there
is a valid contract, and if so, when an employee of a commercial bank bribes a public official to
obtain underwriting privileges on three bond issues, whether the bank must disgorge that part of
the fee paid to innocent third parties. We hold that under the circumstances presented,
disgorgement is an appropriate remedy.”). Plaintiff cites to no binding legal authority suggesting
otherwise.
In light of the foregoing, the Court agrees that Counts Five and Ten of the Amended
Complaint—which assert standalone claims for disgorgement—must be dismissed with
prejudice inasmuch as disgorgement is an equitable remedy—not a cause of action—that is, in
any event, subsumed within Plaintiff’s claims of unjust enrichment.
7

Defendants’ motion to

dismiss Plaintiff’s claims of disgorgement is therefore granted.
f.

Breach of Contract

Defendants move to dismiss Count Thirteen for breach of contract. They claim that
Plaintiff has failed to specify the terms of any agreement that were allegedly violated. To state a
claim for breach of contract, a plaintiff must allege (1) a contract between the parties; (2) a
breach of that contract; (3) damages flowing there from; and (4) that the party stating the claim

Court’s dismissal in this regard does not preclude Plaintiff from seeking disgorgement as a
form of relief in conjunction with his unjust enrichment claims. See, e.g., S.E.C. v. Hughes
Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997) (“Disgorgement is an equitable remedy
designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating
securities laws.”).
18

performed its own contractual obligations. Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir.
2007).
In the instant matter, the Amended Complaint neither alleges the precise terms of the
contract nor which provisions Defendants breached; asserting that Xechem and Xechem India
entered into a loan agreement and that Xechem India has not repaid the loan (Am. Compi.

¶

131-134) is insufficient for the Court to determine the terms of the agreement and whether any
have been breached. See, e.g., Chemtech Intern., Inc. v. Chem. Injection Tech., Inc., 170 Fed.
App’x. 805, 808 (3d Cir. 2006) (“Stating that a contract was breached is stating a legal
conclusion. Stating that a document was signed, that the document called for certain
performance, and that performance did not occur are all factual allegations that would underpin
this legal conclusion.”) In his opposition, Plaintiff concedes that there was no contract when he
argues that “there is no breach of contract as there never was a contract. However, if the Court
disagrees that the loan is a sham, then Plaintiff reserves the right to file a breach of contract
claim against the Pandey brothers, Xechem India, or both.” (P1. Opp. at 11.) In light of the
foregoing, inasmuch as Defendants move to dismiss Plaintiffs breach of contract claim, their
motion is granted. Plaintiffs breach of contract claim is dismissed without prejudice.
g. Civil conspiracy
Count Fourteen alleges that “in committing the acts of wrongdoing alleged herein, all
defendants acted pursuant to a common scheme to conceal and misappropriate assets from
the
Company,” and that “all defendants were aware of the common scheme and took steps
in
furtherance of such scheme.” (Am. Compl.

¶IJ 137-138.)

Under New Jersey law, civil conspiracy is “a combination of two or more persons acting
in concert to commit an unlawful act, or to commit a lawful act by unlawful means, the principal

19

element of which is an agreement between the parties to inflict a wrong against or injury upon
another, and an overt act that results in damage.” Morgan v. Union Cnty. Bd. of Chosen
Freeholders, 268 N.J. Super. 337, 364 (App. Div. 1993) (citations and quotations omitted); see
also Banco Popular N.A. v. Gandi, 184 N.J. 161, 177 (2005). The “gist of the claim is not the
unlawful agreement, ‘but the underlying wrong which, absent the conspiracy, would give a right
of action.” Morgan, 268 N.J. Super. at 364 (citations omitted). Thus, civil conspiracy is a
dependent claim which must be alleged alongside a substantive claim. See, e.g., Eli Lilly and
Co. v. Roussel Corp., 23 F. Supp. 2d 460, 497 (D.N.J. 1998). Moreover, a plaintiff cannot state a
claim for civil conspiracy by making “conclusory allegations of concerted action,” withou
t
including allegations of fact regarding defendants’ joint action. Abbot v. Latshaw, 164 F.3d 141,
148 (3d Cir. 1998).

Thus, in order to survive a Rule 12(b)(6) motion to dismiss, a civil

conspiracy claim must allege “at least some facts which could, if proven, permit a reason
able
inference of a conspiracy to be drawn.” Durham v. City and Cnty. of Erie, 171 Fed. App’x
. 412,
415 (3d Cir. 2006). A plaintiff can meet this requirement when his complaint “sets forth
a valid
legal theory and it adequately states the conduct, time, place, and persons responsible.”
Lynn v.
Christner, 184 Fed. App’x. 180, 185 (3d Cir. 2006).
Plaintiffs Amended Complaint contains only a recitation of the elements of a conspiracyrelated claim without reference to any supporting facts which would allow the Court
to draw the
reasonable inference that each of the Defendants in this action specifically engage
d in the
underlying unlawful acts by virtue of an agreement. To be clear, putting aside
the deficiencies
in substantive claims asserted against each of the Defendants individually, Plainti
ff has failed to
state a facially plausible claim of civil conspiracy because the Amended Compl
aint fails to
contain, inter alia, facts establishing the existence of any type of agreem
ent between the

20

Defendants to inflict an injury on the Plaintiff.

See, e.g., Morgan, 268 N.J. Super. at 364.

Defendants’ motion to dismiss Count Fourteen is granted; Count Fourteen of the Amend
ed
Complaint is dismissed without prejudice.
h. Alter ego
Defendants move to dismiss Plaintiff’s claim of “Alter Ego” because it is not a separate
cause of action but rather a “legal theory by which the principals of a corporate defendant may
be held personally liable under the Plaintiff’s existing claims against the corporation.” (Def.
Br.
at 30.) The Court agrees.
In New Jersey, “[p]iercing the corporate veil is.. .a mechanism for... remedying the
‘fundamental unfairness [that] will result from a failure to disregard the corporate form.” Verni
ex rd. Burstein v. Harry M. Stevens, inc., 903 A.2d 475, 498-99 (App. Div. 2006) (quotin
g Trs.

ofthe Nat ‘1 Elevator Indus. Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188,
193
(3d Cir.2003)). To pierce the corporate veil: “First, there must be such unity of interest and
ownership that the separate personalities of the corporation and the individual no longer
exist.
Second, the circumstances must indicate that adherence to the fiction of separate corpor
ate
existence would sanction a fraud or promote injustice.” Mall at iV Grp. Props., LLC v.
Roberts,
2005 U.S. Dist. LEXIS 31860, at *8 (D.N.J. Dec. 8, 2005) (quoting I William Meade
Fletcher et
al., Fletcher Cyclopedia of the Law of Private Corporations,

§ 41.30 (perm. ed., rev. vol. 1999)).

Plaintiff essentially concedes that alter ego is not a standalone claim when he argues
that
“Ramesh and Bhuwan Pandey. .have. .a unity of interest with Xechem lndia[] suffici
ent for the
.

.

Court to ‘pierce the corporate veil’ of Xechem India as a remedy for unjust actions
.” (P1.
12.)

21

Opp. at

Since, “[p]iercing the corporate veil is an equitable remedy through which a court
may impose liability on an individual or entity normally subject to the limited liabilit
y
protections of the corporate form,” and not a distinct cause of action, Count Fifteen is hereby
dismissed with prejudice. Mall at IV Grp. Props., 2005 U.S. Dist. LEXIS 31860, at *8.
8
Defendants’ motion to dismiss Plaintiff’s claim of alter ego is therefore granted.
IV.

CONCLUSION

Based on the reasons set forth above, Defendants’ motion to dismiss [CM/ECF No. 20] is
granted. Count Six is deemed withdrawn. Counts Five, Ten, and Fifteen are dismissed with
prejudice. All remaining counts—Counts One, Two, Three, Four, Seven, Eight, Nine, Eleven,
Twelve, Thirteen, and Fourteen—are dismissed without prejudice. Plaintiff may file a Second
Amended Complaint that cures the pleading deficiencies in Counts One, Two, Three, Four,
Seven, Eight, Nine, Eleven, Twelve, Thirteen, and Fourteen on or before December 13, 2O13.
Failure to do so will result in dismissal of the Amended Complaint with prejudice.
An appropriate Order accompanies this Opinion.

/

——

JosL. Linares
united States District Judge

Dated: November13, 2013

8

Plaintiff is not precluded from seeking to pierce the corporate veil as a remedy in the instant
action for any claim
against Xechem India. He may plead the necessary elements to pierce the corporate veil
if he wishes to hold the
Defendants individually liable for misdeeds of Xechem India.
Plaintiff may not add any additional causes of action without adhering to Federal Rule
of Civil Procedure 15(a).

22